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Tonga: 2025 Article IV Consultation-Press Release; and Staff Report

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  • International Monetary Fund

Abstract

The 2025 Article IV Consultation discusses that Tonga’s economy is expanding steadily, driven by stronger-than-expected grant inflows, elevated remittances, a rebound in tourism, and fiscal support for the reconstruction. Headline inflation has declined below the reference rate, driven by lower food and energy prices, but core inflation has picked up, reflecting stronger domestic demand. Risks in the banking sector remain contained but have increased and require continued vigilance. Meanwhile, Tonga continues to face significant structural challenges including geographic remoteness, a small and dispersed population, and high vulnerability to natural disasters. The authorities should follow through on their commitment to rebuild fiscal buffers and address structural constraints to growth through policy reforms. The monetary policy stance has been appropriately accommodative in supporting the recovery, but a shift toward neutrality is now warranted with the economy on a firmer footing and demand-driven inflationary pressures re-emerging. Structural reforms are imperative to foster private sector development, deepen financial markets, strengthen resilience to natural disasters, and improve governance are critical to unlocking Tonga’s long-term growth potential.

Suggested Citation

  • International Monetary Fund, 2025. "Tonga: 2025 Article IV Consultation-Press Release; and Staff Report," IMF Staff Country Reports 2025/293, International Monetary Fund.
    • Handle: RePEc:imf:imfscr:2025/293
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